Environmental Engineering Reference
In-Depth Information
evaluations (see, e.g., the topics of Peters and Timmerhaus (1991) and Towler and
Sinnott (2012)); however, the aim of this text is to provide the reader just with simple
first screening tools.
A company deciding to invest in novel technologies as, e.g., biorefineries aims at
making profit (
P
). The net profit in a certain year
j
is defined as
1
t
j
P
j
=
S
j
−
C
j
−
ð
Eq
15
2
Þ
:
:
with
S
being the total sum of income generated and
C
the costs made;
t
is the
relative tax level. Profit before tax raising (
) is considered when
t
j
=0.
The costs (
C
) consist of expenses (
E
) and depreciation on investment in the plant (
D
):
“
pretax
”
C
j
=
E
j
+
D
j
ð
Eq
15
3
Þ
:
:
Now, an important term in economics is cash flow (
CF
), and it is the total income
minus expenses made. In year
j
,itis
CF
j
=
S
j
−
E
j
ð
Eq
15
4
Þ
:
:
Thus, the relation between profit and
CF
becomes
P
j
t
j
CF
j
=
+
D
j
ð
Eq
15
5
Þ
:
:
1
−
By making the decision to invest a money value equal to
I
, the company targets at
generating
CF
. This investment,
I
, consists of two distinctive parts,
I
0
and
I
wc
, so that
I
=
I
0
+
I
wc
ð
Eq
15
6
Þ
:
:
I
0
consists of investment regarding the production facility and the accompanying
supply structure. This investment part
'
s value decreases in time by wear and technical
aging. At the end of the investment
s lifetime, it only has a low value left, the demo-
lition value
I
d
. Total depreciation in
n
years on the investment,
D
, then is defined as
'
D
=
X
n
D
j
=
I
0
−
I
d
ð
Eq
15
7
Þ
:
:
j
=1
Often,
I
d
is neglected in economic evaluations.
I
wc
is the working capital accom-
panying the targeted investment. The difference between
I
0
and
I
wc
is that the working
capital keeps its value; one can think of (durable) supply stocks of raw materials,
(semi)ready products, cash money needed for the investment, etc. In the beginning
(end of year 0), the company must invest in both
I
0
and
I
wc
. At the end of the lifetime,
I
wc
is (to be) released again together with
I
d
.
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